Day of Seesaw Talks Produces No Accord on Fiscal Crisis

“It looks awful,” Senator Richard J. Durbin of Illinois, the second-ranking Democrat, said after tense negotiations on Sunday.Credit
T.J. Kirkpatrick for The New York Times

WASHINGTON — Senate leaders on Sunday failed to produce a fiscal deal with just hours to go before large tax increases and spending cuts were to begin taking effect on New Year’s Day, despite a round of volatile negotiations over the weekend and an attempt by Vice President Joseph R. Biden Jr. to intervene.

In seesaw negotiations, the two sides got closer on the central issue of how to define the wealthy taxpayers who would be required to pay more once the Bush-era tax cuts expire.

But that progress was overshadowed by gamesmanship. After Republicans demanded that any deal must include a new way of calculating inflation that would mean smaller increases in payments to beneficiaries of programs like Social Security, Democrats halted the negotiations for much of the day.

The Republican leader in the Senate, Mitch McConnell, made an emergency call to Mr. Biden in hopes of restarting negotiations, and the White House sent the president’s chief legislative negotiator to the Capitol to meet with Senate Democrats. Soon after, Republicans withdrew their demand and discussions resumed, but little progress was made.

“Talk to Joe Biden and McConnell,” Mr. Reid told reporters when asked if negotiations were continuing.

In the balance are more than a half-trillion dollars in tax increases on virtually every working American and across-the-board spending cuts that are scheduled to begin Tuesday. Taken together, they threaten to push the economy back into recession.

“It looks awful,” said Senator Richard J. Durbin of Illinois, the second-ranking Democrat. “I’m sure the American people are saying, with so much at stake why are they waiting so late to get this done?”

Photo

Senator Mitch McConnell, left, the Republican leader, with aides on Sunday. He called the vice president seeking help.Credit
Stephen Crowley/The New York Times

Senator Lindsey Graham, Republican of South Carolina, who had said early Sunday that he thought a deal was within reach, said later on his Twitter feed, “I think we’re going over the cliff.”

Weeks of negotiations between President Obama and Speaker John A. Boehner inched toward a deal to avert the so-called fiscal cliff, while locking in trillions of dollars in deficit reduction over 10 years and starting an effort to overhaul the tax code and entitlement programs like Medicare. But earlier this month, Mr. Boehner walked away from those talks.

Instead he tried to reach a much more modest deal to avoid a fiscal crisis by extending the expiring tax cuts for incomes under $1 million. When Mr. Boehner’s own Republican members revolted, he ceded negotiations to the Senate. But compromise has proved equally elusive in that chamber.

Absent a last-minute deal, Mr. Reid is expected to move on Monday to bring to a vote a stopgap measure pushed by Mr. Obama, which would retain lower tax rates for incomes below $250,000 and extend unemployment benefits. But it was not clear that would even get a vote. The objection of a single senator on Monday would run out the clock on the 112th Congress before a final tally could be taken.

Mr. Obama appeared on the NBC program “Meet the Press” on Sunday and implored Congress to act. “We have been talking to the Republicans ever since the election was over,” Mr. Obama said in the interview. “They have had trouble saying yes to a number of repeated offers.”

He added, “Now the pressure’s on Congress to produce.”

After the talks broke down over the inflation demand, Senate Republicans emerged from a closed-door meeting on Sunday afternoon to declare the issue off the table for now. Senator John McCain, Republican of Arizona, said that holding the line against raising taxes on high-income households while fighting for cuts to Social Security was “not a winning hand.”

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Then they mustered a new talking point, saying Democrats want to raise taxes only to spend more money. Their new objection: Democrats are seeking a one- to two-year “pause” for across-the-board spending cuts and an extension of expired unemployment benefits for two million people.

For their part, Democrats beat back the inflation proposal, and then promptly proclaimed themselves incensed that Republicans would not soften their position on a generous level of taxation on inherited estates and an insistence that a final deal permanently prevent the alternative minimum tax, a parallel tax system meant to ensure that wealthy people pay more, from expanding to affect more of the middle class.

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Senator Harry Reid, the Democratic leader, may seek a vote on a stopgap measure on tax cuts backed by President Obama.Credit
J. Scott Applewhite/Associated Press

Democrats were also demanding that across-the-board cuts to military and domestic programs — known as the “sequester” — at least be delayed.

“We’re not here to defend government, we’re here to make sure of the defense of our country,” said Senator Barbara A. Mikulski, Democrat of Maryland, whose state would be hit particularly hard. “Sequester has consequences.”

Senate Democratic aides were openly making legislative plans for later this week, to press Democratic proposals after the fiscal deadline is breached — and after the next Congress is sworn in on Thursday with more Democrats in both the House and the Senate.

But officials close to the negotiations said the talks were continuing, centered for now on a new axis, Mr. McConnell and Mr. Biden.

Much of the umbrage was oddly discordant. Mr. Obama has long advocated for a permanent fix to the alternative minimum tax, which must be “patched” each year to keep it from applying to middle-income families. Until this weekend, both Democrats and Republicans appeared willing to let the across-the-board cuts take effect, at least temporarily, while a larger deficit deal is negotiated early next year.

Indeed, many Republicans were the loudest in protesting the cuts. Now that Democrats want them canceled, Republicans equate that position to raising taxes in order to spend more.

On some of the biggest sticking points, the two sides are now inches apart. Barely a week after House Republicans refused to vote to allow taxes to rise on incomes over $1 million, Senate Republicans proposed allowing tax rates to rise on incomes over $450,000 for individuals and $550,000 for couples. Democrats countered with a proposal to extend expiring Bush-era tax cuts up to $360,000 for individuals and $450,000 for couples. For both sides, that meant major movement. Mr. Obama has been holding firm at a $250,000 threshold.

Of course, a big question hung over the negotiations in the Senate: even if the Senate can find an accord, would it pass the House?

Even on the estate tax, the two sides are not far apart, although their language is. Republicans want to tax estates valued above $5 million at 35 percent. Democrats want to tax inheritances above $3.5 million at 45 percent.

If that sounds like a bridgeable divide, Democrats are not conceding an inch. “The net result is that 6,000 Americans would get a $1-million-a-year tax break on their estate tax,” Mr. Durbin said. “The Republicans once again are ready to shut us down over not 2 percent of the population, but 0.1 percent of the population.”

Robert Pear and John M. Broder contributed reporting.

A version of this article appears in print on December 31, 2012, on Page A1 of the New York edition with the headline: Seesawing Talks Yield No Accord On Fiscal Crisis. Order Reprints|Today's Paper|Subscribe